With smartphones conditioning a generation to expect what they want, how and when they want it, omni-channel has become the ante for retailing’s future. Retailers need to move beyond their channels to serve each customer wherever and whenever she wants to be served. Today even retailers with very dynamic inventory like TJMaxx, Saks OFF Fifth and H&M are launching successful e-commerce sites. And digital first brands like Warby Parker, Bonobos, ModCloth, Nasty Gal and Blue Nile are rushing to open stores.
Everyone knows omni-channel is the future of retail. And everyone says it. So why isn’t everyone doing it?
The answer is, many retailers don’t have the two essential ingredients in place. Every retailer is learning how to talk about omni-channel at shareholder meetings, and adding Omni-Channel to an executive’s title. But moving from talking points to a way of life requires two critical components — visible inventory and attribution — that omni-channel initiatives can’t succeed without.
Omni-Channel is profitable
Retailers are rapidly discovering their most profitable customers are people who shop both online and offline channels. Customers that use all of Target’s channels spend three times as much as those that shop only in stores. Likewise, Belk omni-channel shoppers spend an average of $1,064 vs $352 for in-store shoppers. REI omni-channel shoppers spend 2-4 times that of in-store only shoppers and are 40% more likely to make a purchase when they do visit a store.
To forward the action, five common omni-channel use-cases have emerged:
- The most common is Endless Aisle — letting in-store shoppers order from the larger inventory on a retailer’s site. Coach, Tory Burch and Nordstrom do it by equipping sales associates with clientelling tablets and POS systems to place online orders; Kohl’s, Best Buy and Sears put up self-service kiosks; while Macy’s, Target and Walmart provide mobile features.
- Buy Online Ship to Store cuts shipping costs and creates the opportunity for impulse purchases.
- Buy Online Pickup in Store (or Click & Collect for our friends across the pond) eliminates shipping by drawing on existing store inventory, and pickups can be guaranteed as fast as within the hour. Sears and Container Store are even experimenting with curbside pickup.
- Reserve Online Pickup in Store during a tightly defined time window, as Gap does, increases the odds customers will add to the cart but requires staff to stay on top of inventory.
- Buy Online Ship from Store, as Best Buy does, cuts delivery costs and but requires in-store staff to pick, pack and ship items.
The missing ingredients
Here’s the catch: All these use-cases only work if employees actually want shoppers to buy this way. Employees will only promote omni-channel if they know where all inventory is and get rewarded when shoppers practice it.
In fact, omni-channel presumes the ability to see all current inventory and access it from any channel. Yet a surprisingly high percentage of retailers still don’t have an enterprise view of inventory. And many of those that do still fight a confidence battle with store staff. Store personnel are accustomed to the computer counting items that have just sold or are piled outside the dressing room; if it says nine, they expect to find five. Many veteran sales associates with this history don’t want to show customers inventory that might not actually be there.
Closing this gap is job No. 1. Customers increasingly expect to shop the retailer’s entire inventory, and know exactly how fast items will get to them.
The second piece of integration is attribution. At every omni-channel meeting, it’s the unspoken tension in the room. I estimate that half of all retailers still don’t have functional attribution models.
If Endless Aisle sales are credited to the e-commerce P&L and not the store’s P&L — because the items are shipped from the e-commerce warehouse — store employees will not embrace the practice. Similarly, if e-commerce gets credit for an online purchase but a store records a debit when the customer returns the item there, employees will not encourage online shopping.
Every retailer needs an attribution model that encourages omni-channel behavior. All stakeholders from the C-suite to the stockroom need to agree on, buy into, and understand how to measure the performance criteria.
Coach gives the store credit for all sales (regardless of channel), including online orders picked up in store or shipped to a consumer in the store’s market. Best Buy and Walmart split the credit between offline and online based on how much of the work was done by each channel; so stores get partial credit for online ordering in the aisles.
The simplest, most pragmatic approach is a “Shadow P&L,” which gives each channel a separate metric for sales touched or influenced. The sum of every channel’s Shadow P&L can add up to far more than the retailer’s total sales, because multiple channels may influence a single sale. So it’s important to distinguish attribution from accounting. Creating a metric outside of the P&L that supports budgets, hiring and promotions, allows for what would otherwise seem to be uneven crediting. For every 100 sales, online might influence 70 while in-store influences 90. Both deserve credit.
The hardest part of omni-channel is the focus required. Retailers have to develop the management to support the service, or they won’t meet the escalating expectations of an empowered customer base.
[This article originally appeared on MediaPost]